Mining

The chairman of Tanzania Mines and Construction Workers Union (TAMICO), Mr Mbaraka Igangula, was quoted over the weekend saying that wage disparity between foreign and local workers was one of the key reasons for the worker strike at Barrick Gold’s Bulyankulu gold mine. He said the weeklong strike will continue until workers’ grievances on pay, health and risk allowances are met.

… a foreign worker earned 24 million Tanzania shillings ($20,820) a month, while a local worker took home a minimum wage of 200,000 shillings [$180]. A Tanzanian professional worker received $4,000 a month, he said. Foreign workers also received a bonus of 20 percent of their salaries, which is denied to local workers, Igangula added…local workers did not receive any risk allowance for exposure to hazards while working in the mine.

News of the strike come as a surprise considering how Barrick Gold Tanzania and the Tanzanian Government have always touted job creation and social responsibility work by mining companies as some of the key benefits the country is enjoying from the growing mining sector. To the extent that over one third of workers at Bulyankulu are unsatisfied with their working conditions gives credence to the growing public outcry that a “win-win” situation is yet to exist between mining investors and the country. The great disparity in wages indicated above revives the question of whether Tanzanian workers are being treated fairly by major foreign companies in the country.

The strike also raises the question of whether our labour laws, mining laws and mining contracts sufficiently protect local workers in foreign corporations and whether the Ministry of Labour is sufficiently empowered to ensure fair compensation scales and standards, if available, are being enforced by the private sector. However, the recent introduction of minimum wage rates for various private sector areas is a step in the right direction. The question of enforcement of these minimum wages still remains unanswered, and this has allowed many private businessness to ignore the new Government directive.

What are your thoughts on the Bulyankulu strike and the new private sector minimum wage rates? Do you think the strike is fair? Or would do you agree with Barrick that current wages are competitive enough to local workers?

Despite an 18% decline in FDI investments last year compared to the year before, Tanzania once again led her East African neighbours by attracting more foreign direct investments, mostly due to investment for expansion in the mining industry.

According to UNCTAD’s “World Investment Report” which came out last week, Tanzania’s FDI stood at $377 million in 2006 (down from $448 million realized in year 2005). Uganda trailed at $307m, Burundi attracted $290m, Kenya raked in only $51m while Rwanda managed $15m.

As a sub-region, East Africa saw an increase in FDI from $1 billion in 2005 to $2 billion in 2006. However, this sub-region still ranks lowest compared to other African subregions in attracting FDI.

According to the report, the FDI amounts to Africa doubled in 2 years – from $17 billion in 2004 to $36 billion in 2006. The increase is driven by investors seeking new mining locations in response to increasing global demand and rise in commodity prices. However, Africa’s share in global FDI fell to 2.7% in 2006 from 3.1% the year before. FDI outflows also rose from $2 billion in 2005 to $8 billion in 2006.

What are your thoughts about the concentration of FDI that largely goes into mining sector in Africa? Do you think Tanzania and other African countries can successfully leverage this mining and energy boom and translate it into growth in other economic sectors?

According to yesterday’s article on the Financial Times, AngloGold is reported to have also reached a contract renegotiation settlement with government of Tanzania . The move follows similar renegotiations with Barrick Gold and Resolute mining companies.Lately, there has been a growing public outcry that the country benefits little from the growing mining sector. The newly elected government promised to roll back some concessions and renegotiate all mining contracts to arrive at a “win win” situation between government and investors.Some of the gains from renegotiation excerise are:

a) Removal of 15% additional capital allowance on unredeemed qualifying capital expenditure. This tax holiday had effectively delayed payment of 30% corporate tax until the mining company had recouped costs of their initial capital. The removal of the clause will move forward the day when companies with start paying the corporate tax. Barrick Gold has agreed to pay $7 million a year for 5 years as advance payment for corporate tax. AngloGold will start paying the corporate tax in year 2011, four years earlier than initially expected.

b) Mining companies will pay yearly $200,000 to the local government near their respective gold mine to be used for community projects.

c) Removal of exemption to Resolute from paying corporate tax on foreign employees. The removal of this clause will force Rosolute to pay $2.2 million yearly in corporate tax.

d) The mining royalty will remain unchanged at 3% despite claims that it is one of the lowest compared to other gold producing African countries.

A Government-formed committee came up with the following recommendations to be incorporated in existing and future mining contracts:

a) 100% depreciation in capital for the first year reduced to 80%, and then 50% the year after.

b) Withholding tax on technical services increased from 3% to 5%.c) Service fees for administrative expenses increased from 3% to 15%.

The following is a Kiswahili excerpt of a speech by Hon. Nazir Karamagi, Minister of Energy and Minerals, delivered in the National Assembly a few months ago in response to a debate over Buzwagi gold mine project. The Minister highlighted the gains from contract renegotiations:(more…)